Alternative coins rise to challenge bitcoin as the future of money
Dozens of new virtual currencies are challenging the dominance of bitcoin
For many people, bitcoin seems like something from the day after tomorrow.
For Lawrence Blankenship, it's already a thing of the past.
A software engineer from Springfield, Missouri, Blankenship is putting his money on PeerCoin, one of the biggest of the virtual currencies that are being promoted as alternatives to bitcoin.
With mounting interest from prominent investors and growing acceptance from regulators, bitcoin - either the new gold or the next Dutch tulip craze, depending on who is being asked - is at the centre of the virtual money universe. Yet there are dozens of digital alternatives, like PeerCoin, Litecoin and anoncoin, whose backers point to advantages they say their currency has over bitcoin.
PeerCoin, according to Blankenship, is closer than bitcoin to perfect, communal money. Blankenship, 34, has arranged to accept PeerCoin as the virtual currency of choice at a Star Trek convention he is organising in his hometown.
"Looking down the road 10 years from now, I definitely see bitcoin being ousted," he said.
In the alternative galaxy of virtual currencies, newly created money can become worth millions of real dollars in a few months. All the PeerCoin in existence, for example, was worth nearly US$40 million last week. Programmers and mathematicians release new entrants into the field almost every week. On one popular exchange, Cryptsy, 60 different coins are traded.
Almost all of these "altcoins", as they are known, have fed on the stratospheric rise of bitcoin. Since the beginning of the month, the value of bitcoin rose to more than US$900 at one point, from US$200, and it is up 6,000 per cent since the beginning of the year.
Many of the altcoins have risen at the same clip, driven by bets that the internet has room for more than one form of virtual money, or that bitcoin can be overtaken. The constant innovation opens the door to new opportunities for fraud and illegal activities.
Thanks to a lack of regulation, pump-and-dump schemes have become common. But the thousands of hours being poured into these projects underscores the degree to which a small but growing community believes that it has found the future of money.
"In principle, you can have a kind of money with some advantages that have never been possessed by any past forms of money," said George Selgin, an economics professor at the University of Georgia at Athens.
If this is a contest, bitcoin is still light-years ahead of any of its competitors - the value of all bitcoin is measured in the billions of US dollars, while only a few others have even cracked US$100 million. And bitcoin has the basic attributes that most other coins are trying to imitate: an open-source computer code with no central authority and a mathematically determined rate of expansion.
What's more, most altcoins share the biggest weakness of bitcoin: a violently fluctuating value.
But this is not stopping the ascent of things like Litecoin, which is generally viewed as the second-most-popular digital money. Unlike bitcoin, which was invented by a shadowy creator known only as Satoshi Nakamoto, Litecoin was created by Charles Lee, a 36-year-old former programmer at Google who lives with his wife and two children in Silicon Valley.